PETALING JAYA: Hong Leong Investment Bank (HLIB) Research says Malaysian real estate investment trusts’ (REITs) valuations and prospects make the sector a defensive play.

The research house kept its “neutral” call on REITs after pricing in the expiry of the 10% withholding tax concession, adding that the sector could see a valuation uptick from a potential inclusion of some REITs into the benchmark FBM KLCI.

HLIB Research had downgraded the sector from “overweight”, following the expiry of the 10% withholding tax concession earlier this year.

By its estimates, IGB-REIT and Sunway-REIT could be included into the proposed expanded market benchmark to 50 components and 30 now.

HLIB Research identified retail and industrial REITs as the primary engines for growth in the sector.

Retail REIT prospects for the second half of the year (2H26) are supported by a 6% to 7% growth in retail sales and a stable overnight policy rate at 2.75%.

The research house said landlords of prime assets are particularly well-positioned to benefit from turnover rent as nominal price inflation drives gross receipts.

“The subsidised fuel framework (which now includes both RON95 and diesel), should aid in preserving discretionary income.”

HLIB Research has a “buy” on Axis-REIT with a target price (TP) of RM2.16 a unit.

The research house also has a “buy” call on Pavilion-REIT with a TP of RM1.97, with a view that the trust would benefit from the sustained momentum in retail spending at its prime locations.

Sunway-REIT is another “buy” with a TP of RM2.48 and was recently upgraded from “hold” due to a price pullback and its potential inclusion in the FBM KLCI.

HLIB Research has a “buy” on IGB Commercial-REIT with a TP of 72 sen a unit. The trust is favoured for its premium office assets, which allow it to secure positive rental reversions even in a challenging office market, the research house stated.